You Are in Default on a Federal Loan
When The National Student Loan Data System (NSLDS) indicates that you are in DEFAULT on a federal loan, you cannot receive federal financial aid until you resolve the default. Once you can show that the default has been resolved, you can re-apply for the Direct PLUS loan.
The default may not show on your credit history when the credit check is performed, so in some cases, you may be preliminarily approved for the Direct PLUS Loan. However, once the school is notified that you have a federal loan that is in default, your Direct PLUS loan will be cancelled. In it's place, we can offer the student an additional unsubsidized loan in the amount of $4000 or $5000 based on your student's grade-level.
Once you can show that your federal loan default has been cleared, then you can re-apply for the Direct PLUS loan. If approved, any additional Direct Unsubsidized Loan that has not been disbursed, will be cancelled.
Below is a list of acceptable documentation which you may submit to Penn State to document that your defaulted loan has been resolved:
1. Paid In Full Letter
A letter from your lender stating your loan has been paid in full and you are no longer in default.
2. Satisfactory Repayment Arrangement Letter
You can regain your eligibility for federal financial aid if you make repayment arrangements that are satisfactory to your loan holder. Satisfactory arrangements require you to make six consecutive, full, voluntary payments on time. Once you have made the required payments, you must provide documentation to us by submitting a written statement from the loan holder indicating that you have made satisfactory repayment arrangements on your loan.
3. Loans have been consolidated or are in deferment
A letter from the lender stating loans are in deferment or have been consolidated.
All default resolution letters must be from the holder of the loan or from the Department of Education. Please call 1-800-621-3115 for assistance.
Although you can regain eligibility for all federal financial aid funds by making satisfactory repayment arrangements, the loan is still in default. After you make more payments, the loan may be rehabilitated and it will not be in default anymore.